Canada’s top banking regulator is temporarily taking control of Silicon Valley Bank’s Canadian branch
Canada’s top banking regulator is taking “temporary control” of the assets of Silicon Valley Bank’s Canadian branch, a spokesman said Sunday following the collapse of the California-based lender and the resulting market instability.
Superintendent of Financial Institutions Peter Routledge also issued a statement saying he would seek permanent control of the assets and asking Canada’s Attorney General to seek an order to wind up the company.
“By assuming temporary control of Silicon Valley Bank’s Canadian branch, we are acting to protect the rights and interests of the branch’s creditors,” Routledge said in a statement.
“Let me be clear: Silicon Valley Bank’s Canada branch does not accept deposits from Canadians and this situation is a result of circumstances peculiar to Silicon Valley Bank in the United States.”
“The Superintendent took this action to preserve the value of assets held at the branch,” the statement said.
The Office of the Superintendent of Financial Institutions (OSFI) said SVB had operated as a foreign bank branch in Canada since February 2019.
US regulators rushed to shut down SVB, a financial institution with more than $200 billion in assets, on Friday as it experienced a traditional run on the bank, with depositors withdrawing their funds all at once. It is the second largest bank failure in US history, behind only Washington Mutual in 2008.
US regulators had been working all weekend to find a buyer for the bank. Those efforts appeared to have failed on Sunday.
US vows to protect depositors
On Sunday, the US government took extraordinary steps to halt the potential banking crisis, reassuring depositors at the SVB that they would have quick access to all their money.
The announcement came amid fears that the factors that led to the failure of the SVB could spread, just hours before trading in Asia began.
In a sign of how fast the financial hemorrhage was hitting, regulators announced that New York-based Signature Bank was bankrupt and seized on Sunday. With more than $110 billion in assets, Signature Bank is the third largest bankruptcy in US history.
The US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation said Sunday all Silicon Valley Bank customers will be protected and have access to their funds, announcing steps aimed at protecting the bank’s customers and prevent further bank runs.
Some prominent Silicon Valley executives feared that if Washington didn’t bail out the failed bank, customers would attack other financial institutions in the coming days. Share prices have slumped in recent days at other banks that supply tech companies, including First Republic Bank and PacWest Bank.
Many industries affected
The bank’s clients include a range of companies in California’s wine industry, where many wineries depend on Silicon Valley Bank for loans, and tech startups committed to fighting climate change.
Sunrun, which sells and leases solar power systems, had less than $80 million in cash on deposit with Silicon Valley Bank as of Friday and awaits more information on the expected recovery in the coming week, the company said in a statement.
Stitchfix, the popular website for apparel retailers, recently announced in a quarterly report that it has a line of credit of up to $100 million with Silicon Valley Bank and other lenders.
Canadian e-commerce company Shopify told CBC News in a statement that despite being an SVB customer, “only a small portion of our funds and our US-based operations were tied to this bank.”
Silicon Valley Bank began sliding into bankruptcy when its customers, mostly tech companies that needed cash as they struggled to get funding, began withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest collapse of a US financial institution since the height of the financial crisis.
US Treasury Secretary Janet Yellen described the rising interest rates, which were raised by the Federal Reserve to combat inflation, as the core problem of the Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, fell in market value as interest rates rose.
Sheila Bair, who served as chair of the FDIC during the 2008 financial crisis, recalled that in almost all bank failures during that period, “we sold a failed bank to a healthy bank. They wanted the franchise value of these large depositors so optimal, that’s the best outcome .”
But at Silicon Valley Bank, she told NBC Meet the press“That was a liquidity shortfall, it was a bank run, so they didn’t have time to prepare to market the bank. So they have to do that now and catch up.”